The New Thinking In Performance Appraisals

Annual performance appraisals are falling out of favor with HR professionals. Instead, companies are turning to a process of ongoing assessment and feedback.

 

Performance appraisal was once the unquestioned way of doing things, the familiar ritual in which employees and managers sat down for an annual evaluation. If the employees were lucky, they walked away with raises, often tied to a ranking on some sort of rigid numerical scale. Nobody really liked it, but in the old command-and-control style of organizational leadership, this seemed like a perfectly appropriate model for measuring performance.

But today, with the widespread emphasis on teamwork, shared leadership, and an ongoing struggle to find and retain qualified employees, it's a model that is falling increasingly out of favor, says Fred Nickols, a senior consultant with The Distance Consulting Company in Robbinsville, New Jersey.

In a recent survey conducted jointly by the Society for Human Resource Management and Personnel Decisions International 32 percent of the HR professionals surveyed indicated that they were "unsatisfied" or "very unsatisfied" with their organizations' performance-management systems. They cited deficiencies in leadership development, coaching, 360-degree feedback, and development planning. Twenty-two percent said that the greatest challenge they face is a lack of support from top management. Forty-two percent of the organizations that participated reported that executives do not even bother to review the performance-management systems that are currently in place.

If companies don't do annual performance reviews, however, what will take their place? More and more, organizations are turning to systems of performance management. That is what Nickols advocated in 1997 with his provocatively titled article, "Don't Redesign Your Company's Performance Appraisal System, Scrap It!" (Corporate University Review, May-June, 1997). Recently, authors Tom Coens and Mary Jenkins have devoted a book to the subject: Abolishing Performance Appraisals: Why They Backfire And What to do Instead (Berrett-Koehler December 2000), which is full of examples of companies that scrapped traditional performance-appraisal systems.

And although Nickols, Coens and Jenkins advocate an end to performance appraisals, that's just the beginning of performance management. It rests on the following basic principles, according to Nickols:

• Goals should be set and agreed upon by both the manager and the employee.

• Metrics for measuring the employee's success in meeting those goals should be clearly articulated.

• The goals themselves should be flexible enough to reflect changing conditions in the economy and the workplace.

• Employees should be able to think of their managers as coaches who are there not to pass judgment, but to help them achieve success.

The "what to do instead" in Coens and Jenkins' book is nothing less than a "whole cultural shift" in an organization, said Coens, an organizational trainer, employment law attorney, and educator in human resources.

Instead of measuring employees' performance and pointing out where they fall short, organizations will achieve more results by finding ways to fine-tune and improve their systems. So, rather than have hotel management ding a desk clerk in an annual review for being too slow in processing the check-outs of departing guests, it would be more productive to set up an express check-out system.

Jenkins and Coens cite several case studies in which organizations dumped traditional performance appraisals in favor of performance management processes that "decoupled" everything that is packed into the typical review: coaching, feedback, compensation and promotion decisions, and legal documentation:

• The 500-person Madison, Wisconsin, Police Department stopped doing traditional appraisals for all but probationary officers in 1989-1990, replacing them with a system of individual goal-setting, leadership-training, and employee involvement that extends to officers choosing which sergeants they want to work with, sergeants choosing lieutenants and so on.

  A U.S. Department of Justice study of 12 metropolitan police departments found Madison police to be the highest in satisfaction level among citizens, for both white and non-white communities. Each year, the department receives more than 1,000 applications for the department's two dozen openings.

• University of Wisconsin Credit Union, also located in Madison, replaced its appraisal system with an array of elective, flexible, coaching tools and formats. The result has been improved employee satisfaction and a dramatic reduction in turnover, Coens said.

The argument against traditional performance appraisals also was persuasive enough to get the attention of Bruce Mallory, vice president of financial services for SELCO Credit Union in Eugene, Oregon.

After contacting Nickols, SELCO scrapped the credit union's entire performance appraisal system. Instead of using a complex set of matrices to determine raises for SELCO's 200 employees, they opted to give individual managers a pool of money to work with every year. The managers could then award bonuses and raises as they saw fit. And instead of using a formal appraisal system to measure performance, managers were simply told that they had to sit down with the individual members of their teams and have face-to-face conversations on a regular basis. Four years after implementing this system, Mallory's only regret is that SELCO didn't try it sooner.

Today, managers just need to document that they have in fact had regular conversations with their employees. If there are problems, managers are expected to make note of it. This creates the paper trail that will support any eventual disciplinary action or termination. "We figure that we've saved at least $350,000 in time spent alone," he says. "It doesn't mean that we're spending any less time with the people. But it's time better spent. It's managing people differently, rather than managing the paper flow."

Part of that difference is the assessment cycle. It used to be based on date of hire, but Jane Weizmann, senior consultant for Watson Wyatt Worldwide, says it makes more sense to synchronize it with the organization's business calendar. "From the business's point of view, you want to be sure that you line up your needs with the employees' needs. And you want to make sure that you define the relationship between the two."

Thanks to Dayton Fandray / Crain Communications Inc. / Work Force